Main Points

• Gas prices hit the highest level since 2010

• Feb. natural gas contracts rose 10% before it expired yesterday

• Gas is being traded in an upward slope channel

• Technical indicators are showing downside risk in gas price

• Weather agencies predicted continuation of cold spell until Feb. 7

• A government report today may show a drop in last week’s gas stockpiles

Gas futures rallied on Wednesday to a price level which was not seen in more than four years amid frigid weather forecasts and plunging stockpiles. February natural gas prices rose 10% or 52 cents as monthly contracts expired yesterday at $5.557 per Million British Thermal Units (MBTU). Gas prices have already gained 31% this month.

Gas is being traded around $5.27 at 9:45 GMT in Asia. Prices may take a retracement from $5.00, which is a confluence of channel support and hourly moving averages. A break and four-hour close below channel support will turn short term bias negative and may target $4.66 i.e. 55 MA at a four hour timeframe. A break below $4.66 may threaten $4.40, which is a strong support zone in short to medium term.

On upside resistance may be noted at $5.48, swing high of previous wave and then channel resistance, which is currently around $5.53. A breakout through upper channel resistance may push gas prices into a relatively stronger bullish momentum.

It is pertinent to mention that slight negative divergence can be noted with MACD at four-hour timeframe, meaning the price may test channel support in the near future. After hitting extreme overbought territory, Commodity Channel Index (CCI) is still hovering in overbought zone with 127.00 reading at a four-hour timeframe. A CCI reading above +100 signals overbought sentiment.

Relative Strength Index (RSI) is also diverging negatively with overbought reading 71.00 at a four-hour timeframe. An RSI reading above +70 signals overbought sentiment.

Earlier, WSI Corp. predicted that temperatures might remain well below normal in most of the US from February 3rd through February 7th. Chicago’s minimum temperature on Feb. 5 might be -13 Celsius or 8 degrees Fahrenheit, i.e. 11 degrees less than normal, according to a weather report by AccuWeather Inc.. Boston temperatures could fall as low as 22 degrees, i.e. 1 degree less than usual, the report added. Around 49% of American households consume gas for heating purposes, according to Energy Information Administration (EIA) statistics. Thus, record low temperatures in many parts of the US have significantly boosted demand for natural gas.

In addition, an EIA report is likely to show a fall in stockpiles to 231 billion cubic feet during last week, according to an average projection from various analysts. The weekly government report is due to be released at 10:30 A.M today in Washington.

In earlier news, the Federal Open Market Committee (FOMC) ended its two-day monetary policy meeting on a hawkish note. The Federal Reserve trimmed monthly bond purchases by $10 billion to $65 billion. The reduction in QE in its second consecutive policy meeting shows that the economy is improving and a stimulus is no longer required.

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